Centralized Vs. Decentralized Decision-Making

As companies continue to move away from vertically integrated organizations to highly distributed and outsourced supply chains, the principles upon which supply chain management systems were built are being questioned, according to ARC Advisory Group.

Specifically, the effectiveness of centralized command and control breaks down as the need to react quickly and intelligently to changes takes precedence over long-term planning. Planning systems are batch-oriented, and re-planning around unexpected events becomes difficult when inputs are required in real time from a variety of applications and supply chain partners.

In this environment, even minor exceptions can take too long to resolve. When combined with other unresolved exceptions, a cascade effect can occur that results in plans that cannot be executed in the short term. Briefly stated, decentralized decision-making and execution is a scalable approach to addressing the distributed and time-sensitive nature of today’s business environment.

Supply chain event management solutions are by nature decentralized and can neatly serve as a platform for decentralized decision-making. The IT literature increasingly emphasizes the problems with existing centralized command and control systems, thus highlighting the need for developing intelligent decentralized systems. Large supply chain management suppliers emphasize that SCPM can be used to increase the value of existing SCM solutions through better adaptive planning and execution processes. However, supply chain execution suppliers should begin to pay attention to the emerging thinking surrounding decentralized decision-making.